How much risk/reward should the future Social Security system assume?
The idea of introducing a market element to Social Security raises the question of trading off greater risk for greater rewards in planning for future retirement. Although actuarial projections of the effects of the Advisory Council proposals assume greater rates of return from market investments than the trust funds or individuals would earn from Social Security, there is no guarantee. Timing as well as investment choices are critical. Even a passive investment fund, using a market-index approach so as to minimize the risks of poor investment choices, still carries more risk. The 3 Advisory Council plans were priced assuming more than an 11% annual rate of return based on the performance of the stock market over the 95-year period, 1900-1995. However, much of this long-range average is based on what the equities market did in the last 13 years. The Dow Jones stood in the 800-1000 range from 1964 to 1982; on December 31, 1995, it stood at 5,117. Looking back at the performance of the S
